As EU stalls, France goes it alone with special tax on tech giants

France decided this week to introduce a tax aimed at companies such as Google, Apple, Amazon and Facebook, set to take effect on January 1. It will be the first European country to introduce a tax aimed specifically at the tech giants.

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A tax specifically aimed at multinational tech firms has been mooted in France for several years, but the catalyst for the government’s decision to introduce it now was the Yellow Vest protest movement. The French finance ministry said on Monday the tax will bring in around €500 million per year to help finance the concessions – including a rise in the minimum wage and curtailing taxes on pensions – proffered by President Emmanuel Macron in a bid to appease the anger of the neon-jacketed demonstrators.

Sharing France’s annoyance at the Internet giants’ inventive tax avoidance schemes, five other European states – the UK, Italy, Spain, Slovakia and Hungary – have drafted laws to deal with them. Rome even passed a law to this effect in late 2017, but it has not been enforced.

France seems even less prepared to pass such legislation in the weeks to come.

“There was absolutely no proposal on the table for a new French law, and you get the impression that [French Finance Minister] Bruno Le Maire was in a rush to find a way to collect 500 million euros,” remarked Antoine Colonna d’Istria, a Paris-based tax lawyer at the firm Norton Rose Fulbright, in an interview with FRANCE 24.

The details of the forthcoming French tax remain unclear. In light of the de facto January 1 deadline, the most likely scenario is that the government puts forward a national version of an idea that Paris has been pushing for on a European scale: a 3 percent tax on the turnover of businesses with worldwide revenues exceeding €750 million per year and more than €50 million in Europe.

A company can generate huge turnover while still posting losses; for years, Amazon did not make a profit despite its high income because it ploughed that money into investment.

The proposed tax would take into account advertising revenue, sales made on online platforms (for example, purchases made on Amazon.fr) and trade in personal data. But France has failed to get its plan adopted in Brussels, where it has faced opposition from countries that benefit from offering low taxes – such as Ireland and Luxembourg – as well as Germany, which is pushing for a less ambitious approach, namely a tax aimed solely at advertising revenue.

Threat of US retaliation

Faced with this impasse at the European level, Paris has decided to go it alone – despite previously insisting on the need for countries to work together to deal with the likes of Google, Apple, Amazon and Facebook.

“The main risk comes from the US, which could decide on retaliatory measures against a country like France that acts on its own,” noted d’Istria. Indeed, the German press has reported that Berlin’s reluctance to put such measures in place can be explained by its fears of American retaliation against its automotive industry.

As the first of its kind, it remains unclear whether such a tax will work in the long term. “Taxing turnover is not the same as going for the profits,” the French tax lawyer pointed out.

The risk, d’Istria said, is that the tax might discourage highly innovative tech companies from setting up business in France for fear of being subject to it even if they don’t enjoy profits on the scale of those of Google or Apple.

And deterring tech companies contravenes Macron's stated objective of remaking the image of France into that of an innovative, "start-up nation".